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Volatile Session After Strong Retail Sales, Dovish MN Fed Kashkari

US TSYS
  • Treasury futures mildly weaker after the bell, near the middle of a wide range following a volatile (for summer) session. Dovish zinger from MN Fed Kashkari: "I'm not ready to say we're done raising rates, but I'm seeing positive signs which say hey we're maybe on our way, we can take a little bit more time to get some more data to see if we need to do more."
  • Heavy data day: Treasury futures gapped to new contract lows following higher than expected Retail Sales at 0.7% vs. 0.4% est, June up-revised +0.3%, Import Prices 0.4% vs. 0.2% est, partially offset by soft Empire State (-19.0 vs. -1.0 est).
  • Front month Sep'23 10Y futures mark 109-11.5 low (-20.5), through technical support of 109-14 (Nov'22 Low support) before bouncing to 109-17 (-15). Yield hits 4.2681% high is back to 4.2424% +.0511. Curves steepened post data (2Y10Y -73.802), have receded to -76.078 +2.113.
  • Early weakness was quickly reversed, see-sawed back above pre-data levels on heavy volume (TYU3>1.6M). Trading desks suggested smart money accounts unwinding shorts after anticipating the strong Retail Sales due to strong credit card data.
  • Short end rates were first to trade in the green as rate hike projections into year end subsided off this morning's post-data highs. Sep 20 FOMC is 11% w/ implied rate change of +2.7bp (3.0bp high) to 5.356%. November cumulative of +9.6bp (11.1bp high) at 5.425, December cumulative of 7.4bp (9.6bp high) at 5.403%. Fed terminal at 5.425% in Nov'23.
  • Curves held steeper profile after the bell (3M10Y +4.350 at -122.521, 2Y10Y +5.131 at -73.060), also underpinned by late block: +15,176 FVU3 106-01, buy through 106-00.25 post time offer (DV01 appr $628K) vs. -3,078 WNU3 125-22, post-time bid (appr DV01 $620k).
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